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Big health push & some tax relief — what you can expect in Modi govt’s Budget 2021

Employment creation is likely to be a big thrust area for the Modi govt as it looks to ease the blow of the Covid lockdown.

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New Delhi: When Union Finance Minister Nirmala Sitharaman rises to present India’s first post-pandemic Budget on 1 February, her focus will likely be on making a big push for infrastructure spending, creation of employment in key sectors affected by the pandemic, such as textiles, affordable housing, tourism, MSME and infrastructure, as well as healthcare spending, besides easing the coronavirus blow for the middle-income group, the BJP’s “catchment constituency”, and the unorganised sector.

Speaking to ThePrint, sources in the BJP and the government offered a peek at the contours of the Union Budget 2021-22, and described the various factors taken into account to chart it out.

These assessments are based on several rounds of talks held between an internal “think tank” formed by the BJP for Budget discussions, and the Finance Minister. 

Sources in the BJP said the government’s challenge is to present a Budget to satisfy its core support base, including farmers, who are agitating against the farm laws and creating bad optics for the government, small traders, whose businesses have shut down because of low or no demand and who otherwise constitute among the biggest employment generators, the lower-middle-income group, and workers in the unorganised sector who “have not lost faith despite the migrant crisis and job losses on account of the Covid-19 lockdown”. 

“This is time to pay back these groups, who were severely affected during the pandemic. They lost their jobs since there was no demand. They shut their shops and establishments,” said BJP spokesperson Gopal Aggrawal, who is the media point person for the party’s economic outlook.

“The MSME sector was the worst affected. The Atmanirbhar Bharat package addressed many sectoral concerns. Those who were left out will be taken care of in the Budget push,” he added.

Also Read: Why Budget 2021 allocation for MGNREGA, migrant workers’ cushion during lockdown, is key

‘Bringing economy back on track’

The BJP’s Budget think tank has advocated for more government spending on infrastructure, construction, housing, and tourism, which are among the biggest job creators.

“We are passing through a post-pandemic phase. Vaccination has started. Focus will now be on creating an environment to bring the economy back on track,” said Aggrawal.

The Budget may focus on vocational training, reskilling and incentives for those in the private sector who are reskilling their employees, with an aim to create jobs. Assembly elections are due in four states (Tamil Nadu, West Bengal, Assam and Kerala) and one Union Territory (Puducherry) and unemployment can become a big poll issue, so the government’s focus will be on creating employment in sectors such as manufacturing and services. 

“There are various ways, like creation of development financial institutions or DFIs for Rs 100 crore projects,” said a senior BJP leader on the condition of anonymity.

Owned by governments or charitable institutions, DFIs are bodies that provide funds for low-capital projects or when money is not available from commercial lenders.

“The government may also liberalise FDI rules in construction to help homebuyers,” the BJP leader added. “Several sovereign funds and pension funds are interested in investing in big infrastructure projects.” 

The government is unlikely to be tight-fisted during the Budget. As Sitharaman said while addressing a Reuters conference in December, “If I don’t spend now, a stimulus is meaningless. If I don’t spend now, revival is going to be deferred and we can’t afford that.”

It’s a strategy economists back.

“This is not the time to think about fiscal deficit, and the finance minister should focus on only spending, not revenue,” said noted economist Pranob Sen. 

“Revenue will come automatically. However, this is not the time to spend on large projects. Focus should be on small projects in such sectors where immediate rollout can start,” he added. “Large projects take years to roll out due to implementation problems.”

D.K. Joshi of Crisil, an analytical firm involved in ratings and research, said the government has to take care of the urban poor.

“For the rural sector, there is MGNREGA, but there is huge distress in urban areas. The unorganised sector, tourism, and entertainment sectors were hugely affected (by the pandemic),” he added. “Government focus will be some sort of incentive for companies to push demand.”

A government official stated that “since government revenue has been severely affected due to Covid, disinvestment of PSUs will be a priority, which will mean money for spending”. 

“The year 2020 was bad so the government has not realised its target but things will be different this year,” the official said.

Investor and BJP MP Rajeev Chandrasekhar, a member of the think tank, said the Budget presents an opportunity to lay the road map for the next three-four years to achieve double digit growth. 

“We have passed a bad phase and now the government revenue is picking up. There is an opportunity to lay the road map for the next three-four years to achieve double-digit growth,” Chandrasekhar added. “The Budget will give that policy shift for that three-four-year growth momentum, not only this financial year.”

For the middle-income group

The Atmanirbhar Bharat package of the Modi government, Aggrawal said, contained welfare measures for the rural sector as well as incentives for industry. 

For the middle-income group, he said, there is a need to push through standard deductions or other savings benefits on income tax or through housing benefit. “Only if they have money in their pockets will consumption increase,” Aggrawal added. 

Until now, the government has pushed for rebate on all payable taxes, but the basic tax exemption limit has remained the same. This Budget, sources in the BJP and government said, may raise the tax exemption limit from Rs 2.5 lakh to Rs 5 lakh.

Also Read: Why Budget 2021 is a great chance for Modi govt to bite the bullet on PSU bank privatisation

‘A Covid-inspired push for healthcare’ 

In the wake of India’s battle against Covid-19, government sources said a key focus area of the Budget will be medical research and development (R&D), biotechnology R&D, and pharmaceutical R&D. 

Over the past decade, India has spent only spent around 1 per cent of GDP on healthcare, while the US spent 17 per cent. The pandemic, sources said, has shown the “deficiencies” in our healthcare system. 

To address this situation, the sources added, the focus of the Budget will be on long-term goals like building infrastructure, increasing human resources, skilling, and creating a digital healthcare system, even as a large chunk of the allocation is dedicated to Covid-19 vaccination.

With “pharma diplomacy” emerging as a new buzzword as India offers Covid-19 vaccines to other countries, digital healthcare infrastructure and R&D will be given a special push since the “government realised its pharma potential during the pandemic”.

Sources said there could also be an increase in the deduction offered on mediclaim premium under Section 80D. 

MSME focus 

Traders are among the BJP’s loyal constituencies and the MSME sector — a massive employment creator — will find an important position in the Budget, despite the fact that the Atmanirbhar Bharat package also included relief measures for them. 

One complaint the government may try to address is the increase in raw material costs during the pandemic.

“Cost of steel, copper, cement has risen due to trade restrictions and duties, which the government will take care of in the Budget,” said Aggrawal.

Additionally, economist Sen said, the government should push banks for “easy lending to MSMEs”. 

“Banks are only lending to those MSMEs that have a good track record,” he added. “There is no lending for new enterprises. So, rather than creating another fund, it will be better to push banks for easy lending to MSMEs,” he said.

Also Read: Metro, highways, Jal Jeevan — why Modi govt’s Budget 2021 could feature a big infra push


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